Deposit Insurance and Related Reforms

T-GGD-90-46: Published: Sep 19, 1990. Publicly Released: Sep 19, 1990.

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GAO discussed deposit insurance reform. GAO noted that the current deposit insurance system is not the relatively and inexpensive proposition it appeared to be in the past because most of the characteristics which deflected risk away from the banks have been stripped away or significantly diminished due to advances in technology and other factors. GAO also noted that actions that could align the deposit insurance system with the realities of today's markets included: (1) stabilizing the banking industry's financial condition and building greater reliability into industry oversight and enforcement of laws promoting safe and sound banking practices; (2) changing economic incentives; and (3) establishing a framework to ensure that actions taken to expand the powers of banking organizations are consistent with the goal of ensuring the safety and soundness of banks and financial markets. In addition, GAO noted that steps that could stabilize the banking system and the Bank Insurance Fund (BIF) included: (1) increasing financing for BIF; (2) earlier and more forceful intervention by regulators; (3) providing more effective supervision by conducting regular on-site examinations of financial institutions and developing better measures of financial condition; (4) ensuring that regulators have all of the incentives, procedures, resources, and training needed; and (5) holding bank managers and directors more accountable for reporting on the effectiveness of their internal control structure and management practices.

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